Three Considerations When Deciding To Jump Into The New Residential Real Estate Market

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Clark Twiddy is the President of Twiddy & Company, a hospitality and asset management firm along North Carolina’s Outer Banks.

As the Covid-19 crisis continues to impact our lives, consumers are beginning to make what appears to be long-term pivots in their housing choices. These decisions reflect new realities of digital connections, remote work as well as education and the changing fiscal landscape that makes so much of the economy move.

One example of this long-term pivot across America right now is that single-family homes are enjoying a renaissance not seen since perhaps the end of World War II. While it’s tough to attribute this boom to any one particular cause and effect scenario, we know that the overall conditions around homeownership are conducive to purchasing a home. In many cases, the knowledge that this home may offer some rental income as well is simply dessert to an already appealing menu of options.

On the capacity side, record low-interest rates for real estate in effect reward borrowing and penalize savings. As our central bankers continue to inject a veritable ocean of liquidity into financial markets, there is no indication of late that a rate rise of any kind is on the horizon. That relative certainty gives a sense of security to purchases. Look no further than the 104% rise in lumber prices this year due in part to a boom in construction to understand the attraction to homes fueled by inexpensive borrowing.

In addition to the financial atmosphere, the nature of our work life is changing as well. Our emerging ability — or in many cases our emerging requirement — to work and learn from home now means that distance and geography are no longer the barriers they once were to wage earners and page-turners. These trends continue this fall as seemingly one university after another sends students — for the first time in their history — home for the semester. As the oceans and skies were once barriers overcome by navigation and flight, so has the internet overcome the brick-and-mortar anchors to our physical presence. This boom also reflects relative confidence in long-term job markets — knowing you have a steady job for a long time makes a move or home purchase much more likely.

Add to that the daily headlines around our urban centers continuing to wrestle in many ways — both physically and philosophically — with competing visions for their futures. For many urban residents, the relative uncertainty of that future makes the risks of moving away more palatable — look no further than the suburban home market around virtually any large city right now for a barometer of long-term urban confidence.

Lastly, the vacation home market has never been as strong. With travel and tourism internationally or even by air a question mark for the short term, single-family homes in drive-to markets are desirable. Particularly those with reasonable annual rental revenue and long-term asset appreciation. This demand reflects a desire for secure income and a preference for hard assets in light of the gap between Wall Street and Main Street.

Taken together, these factors show how our ability to use our home assets productively — which is to say, earn money for our own bank accounts — has changed significantly. As an emerging proof positive of this trend, think of the many new homes available for sharing in some way, via places like Airbnb, as a kind of residential real estate operating company. It compares favorably to commercial real estate operations and many other comparable asset classes in the way of risks, returns and appreciation. Adding to the proof positive is Airbnb’s plans to move forward with an IPO — which was first rumored before the pandemic. If it moves forward, it’s a watershed moment for home rentals. For many years vacation rentals were considered to be an alternative vacation niche even within travel circles, but the Airbnb IPO can help take home rentals firmly into the mainstream as investible equity.

In assessing all of this new information, it’s clear that new opportunities are awaiting both current and would-be homeowners in new and exciting ways. One challenge to avoiding the inevitable common traps of new opportunities is the ability of decision-makers to make expert moves early. As with so many other asset classes, the earliest movers are so often the most richly rewarded. In assessing an opportunity in this new residential operating real estate, consider three tips as you make progress in your decision-making:

1. Make sure you have a strong understanding of not only the appreciation around your current or prospective home in terms of entry and exit sales prices but also, critically, the credibility of annual rental income. Like any operating company, your home will need a profit and loss statement to truly judge cash flow and profitability.

2. Make sure your insurance plans — your risk transferences — are reflective of the uses of your home. Don’t try to skimp here if you’re offering your home for commercial purposes. Time and again, simple claims or “slip-and-falls” can drastically impact a profit and loss statement.

3. Know your service providers by name, face and communication preference. Relying on random service providers might work well when you’re standing at the door, but with remote homes or nonprimary homes, trustworthy service delivery can save you an emotional roller coaster when it comes to fears of paying too much, poor service and more.

In short, the time we’re spending in our backyards right now has never been so sweet and so attractive to so many. If you own your home, you probably have a good idea of what you’d sell it for and where you’d go once it sold. If you’re looking to invest in a home that’s in demand, preferences have opened up more opportunities to find a property worth buying. Changes in the residential real estate market offer new opportunities worth exploring. Now might be the time to explore them.


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